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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
----------------
OCTOBER 13, 1999
(Date of earliest event reported)
STARNET FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-13627 75-2168244
(State or other jurisdiction of (Commission file number) (I.R.S. employer
incorporation or organization) identification no.)
17000 PRESTON ROAD, SUITE 350
(Address of principal executive offices)
972-239-2939
(Registrant's telephone number,
including area code)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information.
The appropriate financial information relating to the
acquisition reported on November 17, 1999, is filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SARKIS CAPITAL, INC.
Dated: December 9, 1999 By: /s/ Michael J. Gulinson
------------------------
Michael J. Gulinson,
Chief Financial Officer
<PAGE> 3
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
In October, 1999, StarNet Financial, Inc. (the "Company") acquired all of the
outstanding capital stock of Residential Lenders, Inc., a Florida Corporation
("RLI") and certain assets, liabilities, and ongoing operations of Occidental
Mortgage Corporation ("OMC"), a California Corporation.
The unaudited pro forma condensed combined financial information set forth below
have been prepared to illustrate the effect of the transactions on the current
Balance Sheet of the Company, and the results of operations of the combined
companies had the transactions been consummated as of April 1, 1998. The pro
forma adjustments do not anticipate any synergies that are expected to result
from the transactions.
Pro forma Statements of Operation are presented for the fiscal year ended March
31, 1999 and for the interim period ended September 30, 1999. For the fiscal
year, information presented is for Sarkis Capital, Inc., predecessor to StarNet
Financial, Inc. The separate results of operation utilized in the pro forma
information for RLI and OMC are for their fiscal years ended December 31, 1998,
and for the interim period from January 1 through June 30, 1999.
The pro forma financial information does not purport to be indicative of the
results of operations or financial position of the Company which would have
actually been obtained had the transactions been completed as of the assumed
dates and for the periods presented, or which may be obtained in the future.
A preliminary allocation of the purchase prices has been made to major
categories of assets and liabilities in the pro forma financial information
based on available information. The actual allocation of purchase price and the
resulting effect on income from operations may differ significantly from the pro
forma amounts included herein. These pro forma adjustments represent the
Company's preliminary determination of purchase accounting adjustments and are
based upon available information and certain assumptions which the Company
believes to be reasonable. Consequently, the amounts reflected in the pro forma
information are subject to change, and the final amounts may differ
substantially.
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Historical (Unaudited)
--------------------------------------------
Occidental Pro Forma
StarNet Residential Mortgage Adjustments
Financial, Inc. Lenders, Inc. Corporation RLI
--------------- ------------- ----------- ---
<S> <C> <C> <C> <C>
ASSETS
Cash 1,696,247 36,702 49,051 (212,402)(a),(b)
Mortgage Loans Held for Sale 5,679,149 17,601,016
Accounts Receivable 1,345,670 16,808 40,561 (16,443)(b)
Property and Equipment, Net 161,340 6,780 254,877 12,020(a)
Investment Property 300,000
Goodwill, Net 535,106 494,652(a)
Organization Costs, Net 196,555
Purchase Value of Loans in Process 12,000(a)
Covenants Not To Compete 50,000(a)
Purch Val of Internet Brand, etc 50,000(a)
Total Assets 9,914,067 60,290 17,945,505 389,827
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Advances under Warehouse Lines of Credit 5,679,149 17,767,794
Accounts Payable 669,538 117
Accrued Expenses 416,513 3,837 (3,837)(b)
Funds Held on Account for Others 103,825 71,857
Note Payable 200,000(a)
Est Future Purchase Price Payable
Total Liabilities 6,869,025 3,954 17,839,651 196,163
Stockholder's Equity
Preferred Stock --
Common Stock 146,265 10,000 (7,500)(a),(c)
Additional Paid In Capital 4,121,281 46,336 201,164(a),(c)
Subscriptions Receivable on Common Share (186,000)
Retained Earnings (1,036,505)
Net Assets Acquired - Historical -- 105,854
Total Stockholder's Equity 3,045,042 56,336 105,854 193,664
Total Liabilities & Stockholders' Equity 9,914,067 60,290 17,945,505 389,827
<CAPTION>
Pro Forma
Adjustments Pro Forma
OMC Combined
--- --------
<S> <C> <C>
ASSETS
Cash 1,569,599
Mortgage Loans Held for Sale 23,280,165
Accounts Receivable 1,386,595
Property and Equipment, Net 435,017
Investment Property 300,000
Goodwill, Net 1,069,146(d) 2,098,903
Organization Costs, Net 196,555
Purchase Value of Loans in Process 350,000(d) 362,000
Covenants Not To Compete 40,000(d) 90,000
Purch Val of Internet Brand, etc 50,000
Total Assets 1,459,146 29,768,834
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Advances under Warehouse Lines of Credit 23,446,943
Accounts Payable 669,655
Accrued Expenses 416,513
Funds Held on Account for Others 175,682
Note Payable 365,000(d) 565,000
Est Future Purchase Price Payable 1,200,000(d) 1,200,000
Total Liabilities 1,565,000 26,473,793
Stockholder's Equity
Preferred Stock --
Common Stock 148,765
Additional Paid In Capital 4,368,781
Subscriptions Receivable on Common Share (186,000)
Retained Earnings (1,036,505)
Net Assets Acquired - Historical (105,854)(d) --
Total Stockholder's Equity (105,854) 3,295,042
Total Liabilities & Stockholders' Equity 1,459,146 29,768,834
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information
<PAGE> 5
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Historical (Unaudited)
--------------------------------------------
Occidental Pro Forma Pro Forma
StarNet Residential Mortgage Adjustments Adjustments Pro Forma
Financial, Inc. Lenders, Inc. Corporation RLI OMC Combined
--------------- ------------- ----------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue 958,305 483,001 2,433,462 3,874,768
Expenses:
Salaries & Benefits 1,193,220 319,230 2,132,478 3,644,928
Travel & Entertainment 56,349 11,142 85,297 152,788
Office Occupancy Expenses 208,895 81,881 468,607 759,383
Advertising, Dues, & Business Promotion 45,386 20,277 48,408 114,071
Loan Processing Expenses 117,796 55,504 235,300 408,601
Consulting & Contract Services 120,533 306,475 427,008
Legal & Professional Services 20,831 1,750 58,558 81,139
Insurance 19,710 11 19,721
Investment Property Expenses 4,558 4,558
Interest 57,960 57,960
Depreciation & Amortization 52,672 2,476 29,866(f) 33,395(f) 118,410
Other Expense 51,647 4,761 70,206 126,614
Total Expenses 1,949,557 494,557 3,407,805 29,866 33,395 5,915,180
Net Income From Operations (991,252) (11,555) (974,343) (29,866) (33,395) (2,040,412)
Provision for Income Taxes -- -- --
Net Income (991,252) (11,555) (974,343) (29,866) (33,395) (2,040,412)
Pro Forma Net Income Per Share
Basic (0.21)
Diluted (0.21)(g)
Pro Forma Weighted Average Common Shares Outstanding
Basic 9,753,980
Diluted 9,753,980(g)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Historical
----------------------------------------------
Occidental Pro Forma Pro Forma
StarNet Residential Mortgage Adjustments Adjustments Pro Forma
Financial, Inc.(1) Lenders, Inc. Corporation RLI OMC Combined
------------------ ------------- ----------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue 1,362,331 6,859,166 (12,000)(e) (350,000)(e) 7,859,497
Expenses:
Salaries & Benefits 935,433 4,032,210 4,967,643
Travel & Entertainment 82,707 82,707
Office Occupancy Expenses 734,755 734,755
Advertising, Dues, & Business Promotion 75,075 75,075
Loan Processing Expenses 677,867 677,867
Consulting & Contract Services 471,662 471,662
Legal & Professional Services 31,513 31,513
Insurance 34,937 34,937
Investment Property Expenses --
Interest 22,397 22,397
Depreciation & Amortization 10,308 79,051 59,733(f) 66,791(f) 215,882
Other Expense 554 314,537 207,482 522,573
Total Expenses 554 1,260,278 6,449,655 59,733 66,791 7,837,011
Net Income From Operations (554) 102,053 409,511 (71,733) (416,791) 22,486
Provision for Income Taxes -- 19,076 19,000 38,076
Net Income (554) 82,977 390,511 (71,733) (416,791) (15,590)
</TABLE>
(1) Information presented is for Sarkis Capital, Inc., predecessor to StarNet
Financial, Inc.
<TABLE>
<CAPTION>
Pro Forma Net Income Per Share
<S> <C>
Basic (0.01)
Diluted (0.01)(g)
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Weighted Average Common Shares Outstanding
<S> <C>
Basic 1,750,000
Diluted 1,750,000(g)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) The estimated purchase price and preliminary adjustments to historical
book value of RLI as a result of the acquisition by the Company are as follows:
<TABLE>
<CAPTION>
Purchase Price:
<S> <C>
Cash 175,700
Note Payable 200,000
Common Stock, 250,000 shares 250,000
-------
625,700
Historical Book Value of Net Assets Acquired 7,028
Purch Price in Excess of Net Assets Acquired 618,672
Preliminary Allocation of Purchase
Price in Excess of Net Assets Acquired:
Adjustment to Est. Fair Value of
Property & Equipment 12,020
Purchase Value of Loans in Process 12,000
Covenants Not to Compete 50,000
Value of Internet Brand, etc. 50,000
Goodwill 494,652
-------
618,672
</TABLE>
The purchase value of loans in process is the estimated gain after expenses
related to loan applications received prior to the transaction but estimated to
close subsequent to it. Certain principals associated with RLI, as part of the
acquisition, executed employment agreements containing covenants not to compete
with the Company in the event of termination of their employment. RLI has and
will continue to operate an Internet web site from which it derives a
significant volume of its business. It has in place agreements with Internet
presence and content providers for banner displays and links to its own web
site. It has as a result established a "brand awareness" with potential
customers.
(b) Certain assets and liabilities of RLI were excluded from the transaction,
including cash, a receivable from a related party and certain liabilities
incurred prior to the effective date of the transaction.
(c) Common stock of the Company issued in connection with the RLI transaction
was valued at $1.00 per share, consistent with the price obtained in a private
placement of the Company's stock, which concluded in September, 1999.
<PAGE> 8
(d) The estimated purchase price and preliminary adjustments to historical book
value of assets of OMC as a result of their acquisition by the Company are as
follows:
<TABLE>
<S> <C>
Purchase Price:
Note Payable 365,000
Est. Contingent Purch Price 1,200,000
---------
1,565,000
Historical Book Value of Net Assets Acquired 105,854
Purch Price in Excess of Net Assets Acquired 1,459,146
Preliminary Allocation of Purchase
Price in Excess of Net Assets Acquired:
Purchase Value of Loans in Process 350,000
Covenant Not to Compete 40,000
Goodwill 1,069,146
---------
1,459,146
</TABLE>
A portion of the purchase price for the OMC assets is based upon the volume of
loans which are funded by the operation in the four months subsequent to the
acquisition. The amount of this contingent consideration has been estimated in
the pro forma information.
The purchase value of loans in process is the estimated gain after expenses
related to loan applications received prior to the transaction but estimated to
close subsequent to it. A principal associated with OMC, as part of the
transaction, executed an employment agreement containing covenants not to
compete with the Company in event of termination of his employment.
Also in connection with this transaction, the Company issued options to OMC to
purchase 300,000 shares of common stock of the Company. The exercise price of
the options is consistent with the price obtained in a private placement of the
stock of the Company, which concluded in September, 1999. Therefore, the Company
does not deem the issuance of the options as additional purchase price paid for
the assets of OMC.
(e) Loans in Process substantially close and sell to permanent investors in
thirty to sixty days from the time a loan application is received from a
customer and/or third party organization. Therefore, purchase price attributed
to Loans in Process is fully amortized within the fiscal year for which the pro
forma financial statements are presented. Such charges do not recur in
subsequent periods.
<PAGE> 9
(f) The amortization of other intangible assets associated with the transactions
is reflected as if such assets were recorded as of the beginning of the fiscal
year presented and are amortized as follows:
Covenants Not to Compete - Two years (RLI) and three years (OMC)
Internet Brand - Five years
Goodwill - Twenty years
(g) As stated above, options to purchase 300,000 shares of the common stock of
the Company were issued in connection with the OMC transaction. Such options
were not included in the computation of diluted earnings per share because the
options had an anti-dilutive effect on earnings per share.
